The mortgage affordability formula follows the 28/36 rule: spend no more than 28% of gross income on housing costs and 36% on total debt. Calculate housing affordability by multiplying monthly gross income by 0.28. Your total debt-to-income ratio should not exceed 36% for optimal mortgage qualification.
Understanding the mortgage affordability formula is essential for homebuyers planning their purchase and lenders assessing qualification. The proven 28/36 rule provides a reliable framework for determining how much house you can afford, while debt-to-income ratio calculations ensure sustainable homeownership in 2025's evolving market.
The 28/36 rule is the gold standard for mortgage affordability, used by most conventional lenders to assess borrower qualification. This time-tested formula ensures borrowers maintain financial stability while achieving homeownership goals.
Maximum housing costs should not exceed 28% of gross monthly income.
Example: Monthly gross income of $8,000
Maximum housing cost = $8,000 × 0.28 = $2,240
This covers mortgage payment, property taxes, insurance, and PMI
Total monthly debt payments should not exceed 36% of gross monthly income.
Example: Monthly gross income of $8,000
Maximum total debt = $8,000 × 0.36 = $2,880
Includes housing costs + credit cards + car payments + other loans
| Loan Type | Front-End DTI Limit | Back-End DTI Limit | Notes |
|---|---|---|---|
| Conventional Loans | 28% | 36% | Standard 28/36 rule; may flex to 45% with strong credit |
| FHA Loans | 31% | 43% | More flexible DTI; designed for first-time buyers |
| VA Loans | 41% | 41% | No specific front-end limit; total DTI focus |
| USDA Loans | 29% | 41% | Rural property loans; income limits apply |
| Jumbo Loans | 28% | 36% | Stricter requirements; may require lower DTI |
Formula: Gross Monthly Income × 0.28 = Maximum Housing Payment
Real Example:
• Annual income: $96,000
• Monthly gross income: $96,000 ÷ 12 = $8,000
• Maximum housing cost: $8,000 × 0.28 = $2,240
• This covers PITI (Principal, Interest, Taxes, Insurance)
Formula: Gross Monthly Income × 0.36 = Maximum Total Debt
Continuing Example:
• Monthly gross income: $8,000
• Maximum total debt: $8,000 × 0.36 = $2,880
• Current non-housing debt: $640 (car + credit cards)
• Available for housing: $2,880 - $640 = $2,240
Once you know your maximum monthly payment, calculate the affordable home price using current mortgage rates and down payment amount.
Affordable Loan Amount Formula:
Example with $2,240 monthly budget:
| Credit Score Range | DTI Flexibility | Interest Rate Impact | Down Payment Requirements |
|---|---|---|---|
| 740+ (Excellent) | Up to 45% possible | Best rates available | As low as 3% |
| 680-739 (Good) | Standard 36-43% | Competitive rates | 3-5% minimum |
| 620-679 (Fair) | Strict 36% limit | Higher rates | 5-10% minimum |
| Below 620 (Poor) | Special programs only | Highest rates | 10%+ typically required |
Conservative 25% Rule: Some financial advisors recommend limiting housing to 25% of gross income for additional financial cushion.
Net Income Method: Alternative approach using 35-40% of net (after-tax) income for housing costs.
Total Cost of Ownership: Include maintenance, utilities, and HOA fees in affordability calculations.
The mortgage affordability formula provides essential guidance for sustainable homeownership. While the 28/36 rule remains the foundation, understanding DTI variations and market factors helps optimize your home buying strategy for 2025's dynamic real estate environment.
Rising interest rates and home prices are tightening affordability calculations. Consider locking rates early, exploring alternative loan programs, and maintaining flexibility in home features versus location to maximize your buying power in 2025.
Ready to calculate your mortgage affordability? Use our mortgage calculator to determine your exact buying power and explore loan options that fit your financial profile.